SEC Looking Into Wachovia's Revenue-Sharing
Practices

Wachovia disclosed in its 10-Q SEC filing that the
Commission was investigating
the mutual fund sales and distribution practices at
Wachovia Securities LLC.
Specifically, the SEC was looking into
revenue-sharing arrangements between the Charlotte,
North Carolina-based Wachovia and various undisclosed
investment companies.

“Wachovia believes the SEC is reviewing the
adequacy of Wachovia Securities’ disclosures regarding
revenue sharing arrangements with certain investment
companies and Wachovia Securities’ mutual fund sales and
distribution practices,” the number four U.S. bank
said.

No further details of the investigation were provided
in the filing.

Revenue Sharing

The practice of “revenue sharing” involves fund
companies making cash payments to brokers and other
intermediaries for distributing mutual funds.
Through these revenue sharing agreements, the
intermediaries serve as a marketing and distribution
channel for the mutual fund company (See
Fee For All).

The widespread revenue sharing compensation
practices in mutual fund firms have left the SEC
wondering if investors are properly informed and the
agency began its investigation into revenue sharing
arrangement between brokerages and mutual funds in April
2003. Indeed, the SEC found fund
advisors sometimes reward brokers for featuring their
funds by directing brokerage trades to them and provide
increased support to that broker over another (See
SEC: ‘Revenue Sharing’ Rampant in Mutual Fund
Sales
).

Responding to this, the SEC began to examine these
arrangements in more detail at specific investment
companies.
In February, Sun
Life revealed its Boston-based Massachusetts
Financial Services Co. (MFS) unit was one of 14 fund
companies reported to be on investment bank Morgan
Stanley’s “preferred list.”
Sun Life’s disclosure came after the November 2003
settlement between Morgan Stanley and the SEC on charges
that the investment firm steered investors to some mutual
funds in exchange for brokerage commissions and other
payments.

This increased scrutiny by the SEC caught the eye of
Marcy Supovitz, of Boulay Donnelly & Supovitz
Consulting Group, Inc.
Speaking in February at the American Society of
Pension Actuaries (ASPA) 401(k) Sales Summit in Orlando,
Florida, Supovitz said t
he revenue sharing that goes on between fund
companies and brokers will be targeted by reform and will
result in less soft dollars and more hard dollars, as well
as trustee-directed revenue sharing accounts

Further,Supovitz agreed with others at the conference and
said that there are likely to be mandated disclosure of
fees and revenue sharing agreements, but went further in
suggesting that participant statements might also
include fee reporting, so it is not only disclosed to the
plan sponsor, but participants as well (See
Revenue Sharing Still Unresolved
Issue
).